Economic growth in Madagascar is estimated to have stagnated at 3.2% in 2015, but is projected to accelerate to 4.0% in 2016 and 4.5% in 2017.The above performance figures fall short of the minimum 5% target set in the National Development Plan to reduce poverty. The 2016 projected performance exceeded the average recorded for the last five years. The poor performance was the result of political uncertainties, limited progress in terms of governance, low investment in the social sectors and in infrastructure, energy shortages, a 40-day summer strike at Air Madagascar and an overall deterioration of the business environment. The factors were compounded by exogenous shocks that include drought in the south, floods in the north, lower mineral prices and weak growth in the country’s European Partner. The average inflation was kept at 7.4 % in 2015. The budget deficit widened to an estimated 4.6% of GDP in 2015, from 2.3% in 2014, and the current-account deficit deteriorated from 0.2% to 2.3% of GDP, so macroeconomic stability remains fragile and food insecurity is still a concern.

Why invest in Madagascar?

To exploit the country’s natural beauty;

To exploit the investment opportunities in the infrastructure sector and

The country has attained some degree of political stability.

Political

Madagascar consolidated the democratic institutions that have been set up, adopted a decentralisation policy, held elections for local councils and for the senate, convened talks on national reconciliation attended by former presidents, launched a national consultation on public-security reform, and swore in the second government since the transition. The government has the National Development Plan which focuses on three areas including improving governance, fostering economic recovery, and expanding access to basic social services. The founding of the Senate in February 2016 completes the establishment of all of the democratic institutions of Madagascar’s Fifth Republic. The upper chamber comprises 63 senators, two thirds of whom are elected and one third appointed by the President of the Republic. The Constitution now provides that the President of the Senate, Honoré Rakotomanana, will serve as acting president in the event of the resignation, removal or death of the President of the Republic.

Population

Madagascar population was estimated 24.24 million people in 2016 with a growth rate of 2.75 % per year.

Urbanisation

The urban population was estimated at 8.5 million people or 35% of the population in 2015 with urban growth rate of 4.6% per year.

Doing business in Madagascar

The highlights of World Bank score of doing business in Madagascar are summarised as follows;

Topics

World Bank 2017 Rank

World Bank 2016 Rank

Change in Rank

Overall

167

169

2

Starting a Business

113

126

13

Dealing with Construction Permits

184

182

-2

Getting Electricity

185

186

1

Registering Property

159

157

-2

Getting Credit

170

168

-2

Protecting Minority Investors

114

108

-6

Paying Taxes

117

113

4

Trading across Borders

129

134

5

Enforcing Contracts

158

157

-1

Resolving Insolvency

127

127

The government is the in process of creating conducive environment for doing business.

Credit Rating

Not rated.

Remittances

While some foreign exchange and specific capital controls exist, they are not especially restrictive. There are no restrictions on converting or transferring funds associated with foreign investment, including remittances of investment capital, earnings, loan repayments, and lease payments.

Arbitration and disputes

Madagascar’s legal system is based on French civil law, and its provisions contain protections for private property rights. Local commercial law consists largely of the Code of Commerce and annexed laws, which are reportedly applied in a non-discriminatory manner

The Malagasy Arbitration and Mediation Center (known by its French acronym, CAMM) was created in 2000 as a private organization to promote and facilitate the use of arbitration to resolve commercial disputes, both international and domestic, and to lessen reliance on a court system that is, at a minimum, overburdened.

Madagascar is a party to both the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Madagascar ratified the ICSID in 1966 and the New York Convention in 1962.

Key development challenges

Lack of adequate power supply

90% of the population is poor; per capita GDP stands at $420;

One child in two under the age of five suffers from chronic malnutrition

Lacks trained and experienced manpower

The country is at risk from the effects of global warming.

Corruption index

Madagascar ranked number 145 least corrupt nation out of 175 countries and scored 26 points out of 100, according to the 2016 Corruption Perceptions Index reported by Transparency International.

Security

There has been continued political instability in Madagascar since the 2009 coup d’état. Despite the political transition back to democracy in early 2014, the situation remains fragile and may have an impact on security, especially in the capital, the larger regional cities. You should avoid political demonstrations. The country has a low threat from terrorism.

Unemployment and skilled labour

According to Trading Economics unemployment Rate in Madagascar decreased to 1.20 percent in 2012 from

3.80 percent in 2010 and it is projected to be 1.80 percent in 2016.

Attitude to Foreign Direct Investment

The current administration of President Hery Rajaonarimampianina has emphasized private sector led growth as the engine for future economic development and the importance of improving the business and investment climate. The government has underlined the importance of attracting foreign direct investment (FDI), and this commitment is enshrined both in the government’s official policy document, the General Policy for the State, as well as in its National Program for Development.

Restrictions on Foreign investment

Foreign share-holding in the telecommunications sector is capped at 66 percent of shares. Apart from this limitation Madagascar does not discriminate against foreign investors, nor does it prohibit, limit, or condition foreign investments. The government does not screen or approve investments, though some sectors have specific licensing and permitting requirements that often include approval of investment plans.

Intellectual Property (IP) Rights.

Two government offices share responsibility for the protection of intellectual property rights: the Malagasy Office for Industrial Property (OMAPI) and the Malagasy Copyright Office (OMDA). The capacity of authorities to protect against infringement limited by available resources, weakness in the judicial system and a lack of awareness of intellectual property rights among consumers.